Just as today, in the years following World War II the United States faced a national debt exceeding 100% of GDP. Yet, by the early 1970s, that figure had fallen to around 30%. Many policymakers and commentators today point back at this period as proof that economic growth and sound fiscal policies can solve America’s current debt crisis. But can we really “grow our way out” of today’s $36.4 trillion national debt the way we did after the war?
The numbers suggest otherwise.
The drop in debt-to-GDP following World War II was driven by several key factors:
- Rapid economic growth: The post-war economic boom saw GDP growth rates averaging 4% annually from 1945 to 1970, fueled by industrial expansion, a young workforce, and global demand for American goods.
- High inflation: Inflation averaged around 7% annually from 1945 to 1955, effectively eroding the real value of the outstanding war debt.
- Demographic tailwinds: The post-war baby boom and workforce expansion contributed to a broadening tax base and rising productivity.
- Lower peacetime spending: War expenditures ceased, and although Cold War military spending was significant, it was far lower than the cost of World War II, and Dwight Eisenhower’s administration especially succeeded in running the warfare/welfare state much more cheaply.
Today’s fiscal and economic environment is vastly different, making a repeat of this post-war debt reduction unlikely. The current debt load, spending commitments, and slower economic growth mean that simply waiting for GDP to outpace debt is unrealistic—the problem, in short, is structural.
The current U.S. economic and fiscal landscape looks as follows:
- $36.4 trillion national debt
- $27.36 trillion GDP
- 2.5% annual GDP growth (adjusted, past decade)
- $1.8 trillion 2024 budget deficit
- 5.4% of GDP as the projected 2030 deficit
- $4.5 trillion annual tax revenue
- 2.5% inflation rate (as adjusted CPI)
Given these figures, I ran several scenarios to determine what it would take to eliminate the national debt.1Note: obviously, one can play with the numbers in a variety of ways, dialing some up or down, and so the following scenarios are not the only ones possible; but whatever numbers one runs, within the realm of reality, the essential dynamics, and problems, are the same.
One way to reduce the debt burden is through higher economic growth. However, even with aggressive growth assumptions (up to 15% annually), the debt continues to rise due to persistent deficits. There is no realistic economic growth rate that can singularly eliminate the debt within a practical timeframe.
If the government were to cut spending and increase revenues to generate a budget surplus, it would need to achieve a $2.5 trillion annual surplus instead of the current $1.8 trillion deficit. Under these conditions, it would take fourteen years to eliminate the debt. However, achieving such a surplus would require drastic spending cuts or tax increases, both of which are politically improbable.
If inflation were increased beyond the current 2.5% rate, it would reduce the real value of debt. At 6.25% annual inflation, the debt-to-GDP ratio could be reduced to 30% within twenty-eight years. However, this would also bring significant economic risks, erode purchasing power, increase borrowing costs, and destabilize financial markets.
Given these realities, the only feasible way to reduce the national debt to sustainable levels would be a combination of:
- Moderate GDP growth (3-4% annually)
- Sustained budget surpluses (achieved through both spending cuts and revenue increases)
- Controlled inflation (around 4-5%)
However, this approach faces severe political hurdles. Policymakers are unlikely to agree on the necessary spending cuts, tax hikes, or monetary policy adjustments needed to make this happen. Additionally, these projections do not account for the over $120 trillion in unfunded liabilities the government is committed to paying in the future—mainly through Social Security, Medicare, and other entitlement programs.
The belief that the United States can “grow” its way out of debt, as it did after World War II, does not hold up under scrutiny. The economic conditions today are vastly different, and no single factor—be it growth, spending cuts, or inflation—can resolve the debt issue alone. The only realistic path forward would require a politically unpalatable combination of all three. Without serious fiscal reform, the U.S. debt problem is not going away anytime soon, and kicking the can down the road will only make the eventual reckoning more painful.
Another default, albeit a technical one, as in 1790, 1862, 1933, and 1971, seems inevitable.
